How the next digital revolution can revive Canada’s economy

While the government is trying to put a square fiscal peg into a round deficit hole with its new budget, it is fast discovering that if you hew too closely to your election promises, the world around you will upset the best laid plans.

Old-fashioned solutions like infrastructure spending on bricks, roads and public works or an accommodative monetary policy won’t revive Canada’s flagging economic fortunes. The government’s challenge is now to come up a serious Plan B that is focused on mainstreaming the digital revolution into the rest of the economy and the public sector. That is where the real gains in productivity, innovation and growth will come from.

The world is on the cusp of a major transformation that will rapidly see a fusing of the digital with the mechanical, analogue world.

It is not just the so-called Internet of Things, which is hooking up the ordinary objects of our daily life to the Internet, such as your watch or toothbrush, but also a data revolution that will transform the way goods and services are produced and sold right across the globe. Innovations such as 3D printing, advanced robotics, online delivery of educational services, cloud computing, supply chain management, crowd financing and e-commerce are just the beginning. These and other innovations also have the potential to fundamentally alter the way governments operate, cities are run and public services are delivered.

The potential gains are significant. A study by the Boston Consulting Group projects that the Internet’s contribution to the economies of G20 countries will be $4.2-trillion (U.S.) in 2016. That is bigger than Germany’s entire GDP. Another study showed that so-called “high-Web” small- and medium-sized enterprises have revenue growth that is almost 25-per-cent higher than those with a marginal web presence. More than a third of U.S. export value now comes from trade in digitally deliverable services.

We have not heard much from the new government about its ideas concerning how to use digital innovations to improve employment prospects, enhance Canadian productivity and boost exports.

It is still early days in its mandate, but if it is serious about kick-starting the Canadian economy, it will have to articulate a strategy to ensure that we are a global digital leader, not laggard.

Right now, we are regressing toward much lower growth rates. Our energy and commodity sectors are sputtering. Our manufacturing sector in the heartland of Ontario is labouring against high costs including excessive rates for flagrantly subsidized electricity gambits. The automobile sector is on skids and will not be revived by more government bailouts, whether the Trans-Pacific Partnership agreement is ratified or not.

The electronics and software that will run the cars of the future and hook them up to the Internet will be the source of the real value added in automobiles, not the manufacturing of side panels or rivets.

Productivity and innovation gains in this sector, along with everything else we do and produce, are going to come from embracing the full potential of the Internet and scaling up the use of digital throughout the entire economy. The key elements of coherent government policy are a taxation policy that rewards risk taking, doesn’t penalize financial success, encourages Canadian entrepreneurs to remain in the country, protects intellectual property rights, doesn’t try to pick winners and funds basic research.

If the government is serious about bringing real innovations in governance to Canadians it will also make major investments in e-government. It should take a careful look at Estonia, which provides the most wired set of government services in the world.

With the big-data revolution and the “Internet of Things,” the security of our digital infrastructure will be paramount. This is a vital issue not just for governments, but also the private sector, which manages more than 85 per cent of the Internet’s infrastructure and software.

The U.S. economy generated more than 210,000 jobs in November while Canada shed 35,000. That should be a wakeup call. Once the euphoria emanating from the Paris climate conference abates, harnessing the full potential of the digital revolution should move to the forefront. The new generation of voters who helped elect the government understands this. Let us hope our leaders do, too. Because it is indeed 2015.

Fen Hampson is a distinguished fellow and director of the Global Security & Politics program, overseeing the research direction of the program and related activities. Previously, he served as director of the Norman Paterson School of International Affairs and will continue to serve as chancellor’s professor at Carleton University. He is the recipient of various awards and honours and is a frequent contributor to the national and international media.

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